Last year saw the completion of a major law firm merger between the UK Magic Circle’s Allen & Overy and US powerhouse Shearman & Sterling. Meanwhile, a deal between London-headquartered Herbert Smith Freehills and US firm Kramer Levin was announced. Overall, law firm merger activity in the past few years has been buoyant, both within individual jurisdictions and internationally.

US consultancy Fairfax Associates said A&O Shearman was the largest completed merger of 2024 involving a US firm, and one of three cross-border mergers to take effect during the year. The others were the combination of Dentons with PJS Law in Manila, and the addition by Paul Hastings of Antonin Lévy & Associés in Paris. A further 47 domestic US mergers completed in 2024, making a total of 50, up from 49 in 2023.

In the UK, the most recent data available from the Solicitors Regulation Authority shows that 114 mergers took place between November 2023 and October 2024, down a little from 121 mergers in the full year 2023. 

Lisa Smith, who heads up the Washington, DC, office of Fairfax Associates, says she expects 2025 to be another busy year in the law firm merger market. ‘The interest level in mergers is higher than we’ve seen for a while, but there still remain barriers to getting mergers done,’ she says.

Smith explains that firms wanting to position themselves as ‘global’ need to have meaningful presences in jurisdictions such as the UK and US. ‘It used to be easier to manage those cross-border mandates with a relationship,’ says Smith. ‘It is far more challenging when there are many competitors that can handle transactions in their own firms.’

Mergers are also often prompted by the changing fortunes of firms. ‘Law firms are not very robust businesses, they have very thin balance sheets. It doesn’t take too many high-powered partners to leave for the rest of the partners to suddenly realise that their business model’s no longer viable,’ says Robert Millard, Founder of international advisers the Cambridge Strategy Group. 

Millard says the law firm market remains broad in size, with comparatively few huge organisations and a significant number of much smaller practices. Firms will probably keep hunting for economies of scale to manage the changing technological and regulatory landscapes. ‘What’s driving people forwards are the technological developments, where at the higher end of the market people are grappling with the onset of artificial intelligence [AI], new tech [and] new developments and are simply coming together to pool resources or are starting to think about it,’ says Marmor. ‘That I think is a big driver for the sense of either well-structured thinking, or panic, or everything in-between.’

‘It’s a cost piece but it’s also being able to invest in the talent that’s required to understand [the technological developments] and how to exploit them,’ says Smith. ‘It’s not just AI, it’s also data security and all the things on the tech side that are going to become mission critical to law firms.’

One growing trend in the UK is for private equity houses to invest in law firms, often seeking to establish legal services groups in the process. Marmor says private equity investment can be a good option for smaller firms to help build capabilities, but the model comes with risk. ‘There’s a trade-off because it depends how much of the equity the house is taking and whether the partners retain control,’ he explains. ‘The collaboration between practice and clients may not be as strong because you’re not as invested in your firm.’ 

However, Marmor adds that if the balance is right, such investment could be great for moving a firm ‘up the food chain technology wise. It could be the salvation of the practice and good for everybody and good for clients.’

Millard says firms accepting private equity investment need to consider how they’ll deliver the returns their funders want. ‘For private equity to really get the kind of returns they expect there needs to be a significant uplift in the economic performance of a firm on the back of that investment,’ he says. ‘Some years back that was driven by a completely naïve mistake, which was looking at profit margins in partnerships and comparing it to profit margins in corporates. Once you take the partner drawings off, the profit margin is precisely zero.’

At present, external investment in law firms is limited, with the majority of jurisdictions prohibiting the practice. In the US, Arizona is the only state to allow outside ownership of firms in certain circumstances, but Smith expects things to slowly change. She says such investment ‘might work at the consumer-facing level or the contingent fee level’ but not, in her view, at the corporate-facing level. However, Smith adds that there’s a high degree of interest and ‘smart people’ are involved, so believes change will eventually happen in this area.

More broadly, there’s the expectation that mergers will continue, particularly in the US and UK markets, although Millard says that elsewhere, consolidation between national firms is more likely – after all, there are a significant number of jurisdictions where global entities have been unable to truly make a dent in the market, despite their efforts, and are now even pulling out.  

Ultimately there remains plenty of appetite as well as many potential targets for law firm mergers. However, commentators don’t expect anything in the legal sector akin to the type of consolidation seen in the accountancy market, for example. Opportunities for strategic expansion are there – but not every law firm will want to take them. 

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